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Sterling climbs to 10-month high vs euro, slips against dollar

Tom Wilson
·2-min read
FILE PHOTO: Pound and U.S. dollar banknotes are seen in this illustration

By Tom Wilson

LONDON (Reuters) - Sterling climbed to a 10-month high against the euro on Wednesday as investors bet Britain's COVID-19 vaccinations would help its coronavirus-battered economy reopen quickly and recover from its worst hit in 300 years.

The pound rose 0.3% against the euro to 86.83 pence, its highest since April 2020. It had climbed a day earlier to its best against the common currency since last May.

Britain has vaccinated 15.6 million people with a first dose against COVID-19 so far, and bets that its tattered economy could reopen quickly bolstered the pound.

Expectations of large fiscal stimulus in the United States have also sent the pound to its highest in 2-1/2 years against the dollar.

Still, the pound fell 0.4% against the dollar to $1.3845 by 1525 GMT. It has slipped around 0.7% from the $1.3955 it reached against the greenback on Tuesday, its highest since April 2018.

"The UK's successful vaccine rollout puts the economy in a relatively good spot," analysts at BMO Capital Markets said in a note.

Bets on a rebound in global growth, known as the reflation trade, have also added to sterling's gains, with the British currency seen as correlated with growth and risk sentiment.

Still, some analysts voiced caution at moves to value the pound tied to the progress of vaccination programmes.

"I have been a little bit dubious trading the vaccine rollout differential in FX," said Derek Halpenny, head of research for global markets at MUFG.

"Would I be selling the euro because it's behind on vaccine roll-outs? No," he said, adding that data on hospitalisations and deaths were also important.

Sterling shrugged off data showing British inflation rose a little more than expected in January as the country went back into a coronavirus lockdown.

(Reporting by Tom Wilson; editing by Gareth Jones, Larry King and Jonathan Oatis)